Reducing Incomes and Redistributing Misery
In the post about President Bush’s decision to bailout GM and Chrysler I wrote the following,
But if we tweak the economy just right, always elect just the right man…why everything will be fine.
Christ, it really amazes me that so many grown adults have seen this kind of stuff time and again, and still they think there is a pony somewhere there in government intervention in the economy.
For some people there is absolutely no amount of empirical evidence that will move them from a viewpoint.
This prompted Rick Almeida to riposte,
It is equally amazing that so many believe with religious fervor that, if only there were no government intervention in the economy, ponies would spontaneously generate.
And just to clarify on this: I do not think that a market economy with minimal government intervention will bring about Nirvana or spontaneous pony generation.
My view is that many see the legitimate role of government as reducing misery and redistributing income. I think this is a fair characterization of President-elect Obama (see for example his comment to Joe “the Plumber” Wurzelbacher) who said,
My attitude is that if the economy’s good for folks from the bottom up, it’s gonna be good for everybody. If you’ve got a plumbing business, you’re gonna be better off if you’re gonna be better off if you’ve got a whole bunch of customers who can afford to hire you, and right now everybody’s so pinched that business is bad for everybody and I think when you spread the wealth around, it’s good for everybody.
I’d even President Bush thinks this way too. The current bailout of GM and Chrysler is an attempt to reduce misery. It also redistributes incomes from those not in the auto-industry to those in it.
However, my view is that an activist government, on the other hand actually reduces incomes and redistributes misery. Lets take the bailout noted above. It redistributes the misery from being concentrated in the auto-industry and spreads it around to everyone else in the economy. It also reduces incomes by driving up federal debt (we are well on track for a $1 trillion dollar deficit) which will make it harder for people to borrow money as well as increase future debt obligations even faster than otherwise.
To retiterate, I don’t think that simply by reducing the size and scope of government’s role in the economy will bring about ponies and rainbows, spontaneously or otherwise. I do think that it will help limit some of the problems we are having today as I explained in the post here. Lets think of it this way, the government has been spending trillions to avert an economic crisis that could create economic distress for many people. Lets say the number is $2 trillion counting all the money the Fed has been spending, the $700 billion under TARP, and other bailouts prior to TARP. This number is probably too low. We could take that money and send every one in the united states about $6,0000. Think about a struggling family of 4, they’d get $24,000. This strikes me as a far better way of redistributing income and reducing misery than providing a bailout to AIG where upon they haul their sorry butts out to a resort near where I live in California and party hard. If we further restricted the money to people who earn below a certain amount of money it would be an even larger amount.1
I know, I know, we must preserve Wall Street. Why without it the world would end. There would be no more credit and people couldn’t spend money. Well except for the money they earn at their jobs, the money the government just sent them, and money they have saved. But lets not get caught up in logic and reasonableness. Lets panic and make sure that CEO’s who’ve made foolish decisions are allowed to keep their jobs, their bonuses, and have even greater incentive in the future to engage in even more imprudent risk taking behavior.
Surely a winning plan! Corporate welfare all the way baby!
1I can’t wait for the first commenter to post about how that struggling family wont spend the money wisely and thus, we’d be oh so much better off sending it to Wall Street. They have after all demonstrated how prudent they have been the past 10 years.